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What Individual Mandate Repeal Means for Employers

The individual and employer mandates are intertwined, so eliminating one could start to unwind the other

December 22, 2017 | Stephen Miller, CEBS

A man holding up a piece of paper with the words are you covered?.

The 2017 tax act, signed into law on Dec. 22, effectively repeals the Affordable Care Act's (ACA's) requirement that most Americans obtain ACA-compliant health coverage, effective in 2019.

Specifically, the legislation reduces to zero the tax penalty for going without coverage. It will not alter the ACA's mandate that employers with 50 or more full-time equivalent employees offer their full-time workers ACA-compliant health coverage, nor will it change employers' reporting obligations under the ACA.

"Some employers may see fewer health plan enrollees" when the repeal takes effect, said Scott Behrens, vice president and benefits attorney at Lockton Compliance Services in Kansas City, Mo. However, "the ACA employer mandate will remain, which means large employers will still need to offer coverage meeting minimum standards to avoid penalties."

Nevertheless, "Repeal of the ACA individual mandate will likely have a direct and indirect impact on employer-sponsored plans," said Chatrane Birbal, senior advisor, government relations at the Society for Human Resource Management.

"The individual mandate was put into effect to increase the number of healthy individuals in the insurance marketplace, with the idea that the healthy could subsidize the sick," said Zane Dalal, executive vice president of Benefit Program Administration, a Los Angeles-based company that manages benefits programs for employers and trade unions. "If healthy individuals opt out of coverage without penalty, employer premiums are likely to spike, and overall, this is an unsustainable option."

Individual and Employer Mandates Intertwined

"Many in the benefits community anticipate that, following repeal of the individual mandate, repeal of the employer mandate is not far behind," given that the mandates were intended to support one another. Once you begin to undo the threads, Dalal suggested, the whole quilt starts to unwind.

Other employer requirements, such as PCORI fees, could also be repealed, he said.

However, employers subject to the ACA had expected that a Republican administration and a GOP-majority Congress would have earlier been able to repeal the employer mandate, if not the ACA itself. Those efforts failed, leaving in place the ACA's employer coverage requirements, fees, and obligations to track and report all employee hours to the IRS, along with other administrative requirements.

Until the ACA's employer coverage and reporting obligations are changed through legislative actions or regulatory adjustments, employers subject to the ACA must comply with all its coverage and administrative requirements, benefit advisors have noted. In recent months, the IRS has been sending penalty notifications to employers that owe Employer Shared Responsibility Payments for noncompliance with the employer mandate.

"Reporting for 2017 is certainly still required and, given the IRS's clear intention to enforce the mandate, I would expect reporting to continue into 2018 and possibly beyond," said Kim Buckey, vice president of client services at Birmingham, Ala.-based DirectPath, an employee engagement, health care transparency and compliance company. "That said, it's possible that the reporting requirements will change going forward—either the form itself, or perhaps the requirement to provide a statement, at least in its current form, to employees."

"Many do believe that the individual and employer mandate go hand in hand, and the repeal of one may lead to the repeal or 'softening' of the other," said Arthur Tacchino, J.D., chief innovation officer at SyncStream Solutions, an ACA-compliance software firm headquartered in Baton Rouge, La. "It is likely that Republicans will continue to push to either fully repeal the employer reporting requirement or simply streamline the reporting, which would make the process less arduous on employers."

He added, "It is not likely that this will happen quickly or any time soon, but it is certainly a legislative item to keep an eye on."

State-Level Mandates

Dalal pointed out that many states, such as California, are likely to keep the ACA mandates intact, regardless of whether they are repealed on the national level.

"It is very likely that California, where an ACA exchange was successfully put into operation, will close the gap to keep some form of Covered California [the state-run exchange] functioning and viable," he said. "It is likely this will require the individual mandate to remain in effect as part of California law."

Another View: A Marginal Effect on Employers

While the employer mandate's coverage requirements and penalties are not affected by the individual mandate penalty repeal, "it is likely that fewer employees will enroll in employer-sponsored coverage in the absence of the [individual] mandate," explained Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va., in an analysis posted on the Health Affairs blog.

He noted that the Congressional Budget Office "predicts that over the next decade two to three million fewer individuals will have employer coverage in the absence of the [individual] mandate. If fewer individuals seek coverage through the [ACA] exchange, moreover, it is likely that some employers will escape the employer mandate penalties, which are, again, only imposed if one or more employees receive premium tax credits through the exchange."

Repeal of the individual mandate "may thus undermine the employer mandate as well (although it will not affect the reporting requirements, which are arguably the most burdensome feature of the employer mandate)," Jost added. "On the other hand, 150 million Americans have employer-sponsored coverage, so any effects of the individual mandate repeal on the employer-sponsored market will be marginal."

Related SHRM Articles:

President Signs Tax Bill Altering Employee Benefits, SHRM Online Benefits, December 2017

Tax Act Alters Executive Pay, Affects Bonus Deductions and Withholding, SHRM Online Compensation, December 2017

Related SHRM Resource:

Health Care Reform Resources for Employers

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